Industrialization, Returns, Inequality

Thilo N. H. Albers, Felix Kersting and Timo Stieglitz
Additional contact information
Thilo N. H. Albers: HU Berlin
Felix Kersting: HU Berlin
Timo Stieglitz: HU Berlin

No 462, Rationality and Competition Discussion Paper Series from CRC TRR 190 Rationality and Competition

Abstract: How does revolutionary technological change impact wealth inequality? We turn to the mother of all technological shocks–the Industrial Revolution–and analyze its role for wealth concentration both empirically and theoretically. Based on a novel dataset on wealth shares at the level of Prussian counties, we provide causal evidence on the positive effect of industrialization on the top percentile's wealth share and the inequality among top fortunes. We show that this relationship between industrialization, wealth concentration, and tail fattening is consistent with both cross-country data on national wealth distributions and with a new individual-level dataset of Prussian millionaires. We disentangle the mechanisms underlying the observed wealth concentration and tail fattening by introducing a dynamic two-sector structure into an overlapping generations model with heterogeneous returns to capital. In particular, we study the role of sector-specific scale dependence, i.e. the positive correlation of rates of return and wealth in industry, and dynastic type dependence in returns, i.e., the gradual one-directional transition of wealth-holders from the low-return traditional to the high-return industrial sector. The simulations suggest that the combination of these two features explains about half of the total increase of the top-1% share, while the other half resulted from the general increase and higher dispersion of returns induced by the emerging industrial sector.

Keywords: rates of return; wealth inequality; industrialization; technology; simulation (search for similar items in EconPapers)
JEL-codes: D31 E21 N13 O14 (search for similar items in EconPapers)
Date: 2023-11-22
New Economics Papers: this item is included in nep-fdg, nep-gro and nep-tid
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://rationality-and-competition.de/wp-content/ ... ussion_paper/462.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rco:dpaper:462

Access Statistics for this paper

More papers in Rationality and Competition Discussion Paper Series from CRC TRR 190 Rationality and Competition
Bibliographic data for series maintained by Viviana Lalli ().